Government austerity measures have not got down so well with citizens, provoking demonstrations as seen here in Lisbon against cuts to the health budget. Photograph: Patricia De Melo Moreira/AFP/Getty Images

Portugal will receive the latest tranche of its €78bn (£61.2bn) bailout, after the International Monetary Fund lauded Lisbon's efforts to tame its deficit and reform its economy.

In the fourth review of the country's rescue package, which it received in May 2011, the IMF says the government in Lisbon has made "strong" progress in complying with the demands of its lenders, and should be paid the next €1.48bn.

However, the IMF, which participated in the bailout, as well as rescues for Greece and Ireland, said there were growing risks for the Portuguese outlook as the eurozone sovereign debt crisis intensifies.

"There remain significant headwinds to growth from the high degree of private and public sector indebtedness as well as the adverse external environment. Comprehensive policy action on the European level would contribute significantly to the chances of success of the programme."

It said specific risks included a deeper recession than expected; a crisis in the public finances if the government is forced to bail out indebted banks or other businesses; and the wider eurozone turmoil.

Portugal is seen as a model pupil by Euro policymakers, because it has managed to shrink its structural deficit – the part not explained by the recession – from almost 9% of GDP, to a predicted 2.5% in 2012, a feat the IMF describes as "impressive".

However, the IMF's report also underlines the heavy social cost of Portugal's debt crisis, with the economy stuck deep in recession.

GDP is expected to contract by just under 2% in 2012. Unemployment has shot up to more than 15%, and the IMF expects it to continue rising through next year, while average pay is expected to fall, as the government cuts public sector wages.

In the report, the IMF also urges Portugal to press ahead with reforming its civil service, including laying off staff, tightening financial management of state-owned firms, and improving tax reporting.

"The authorities are pressing ahead, and results so far have been very positive, particularly given the complexity and breadth of the reform. However, there are still many reforms outstanding, and there is an increasing risk of reform fatigue and reduced appetite for the more politically difficult reforms," the IMF says.